#6629 - Target Holdings V. Redfern - Commercial Remedies BCL

Target Holdings v. Redferns

Facts

Prior to 15 May 1989 two adjoining plots of freehold land in Birmingham, together known as 60-64, Great Hampton Street, Hockley ('the property') were owned by Mirage Properties Ltd. ('Mirage'). On 15 May 1989 Mirage agreed, subject to contract, to sell the property to Crowngate Developments Ltd. ('Crowngate') at a price of 775,000. A firm of solicitors, the defendants Redferns, acted as Crowngate's solicitors.

On 9 June 1989 the plaintiff, Target Holdings Ltd. ('Target'), received two completed loan application forms signed by a Mr. Kohli on behalf of Crowngate. The applications were for loans totalling 1,706,000 and stated the purchase price of the property to be 2m. The application gave no particulars of the vendor. Target was never told that Crowngate had agreed to buy the property for 775,000. The application was supported by a professional valuation of the property at 2m. made by the second defendant, Alexander Stevens and Co. Ltd.

Crowngate's scheme was that Mirage would sell the property to a Jersey company, Panther Ltd. ('Panther'), for 775,000; Panther would then sell it to an English company, Kohli & Co. Ltd. ('Kohli and Co.') for 1,250,000; and Kohli & Co. was then to sell the property on to Crowngate for 2m., being the price at which Target believed Crowngate was purchasing the property.

On 23 June 1989 Referns were instructed by Target to act for them.

On 28 June 1989 Target transferred 1,525,000 to Redferns without giving any express instructions to Redferns as to its release. It is common ground that Redferns had implied authority to pay the money to or to the order of Crowngate when the property had been conveyed to Crowngate and Crowngate had executed charges in Target's favour. On 29 June, without seeking Target's consent, Mr. Bundy transferred 1,250,000 (namely the sum payable on the purchase by Kohli & Co. from Panther) to Panther, the bank account of which was controlled by its directors.

Contracts for the sale of the property to Panther were signed by Mirage on 30 June, on which date Mirage also executed transfers to Panther. Also on that date Mr. Bundy instructed the directors of Reads to pay from Panther's bank account sums totalling 1,072,787.42, of which the sum of 772,787.42 was to be paid to Mirage (being the sum due on completion.

The contracts of sale to Kohli & Co. and to Crowngate were probably signed by those companies by 5 July. The legal charge of the property in favour of Target had also probably been executed by Crowngate by 5 July. The contracts and transfers were dated 30 June 1989 and the legal charges 31 July 1989.

Holding

Lord Browne Wilkinson

Redferns, acting by Mr. Bundy, was fully aware of the transaction involving Mirage, Panther, Kohli & Co. and Crowngate. Although Redferns were also acting for Target as lender, they never informed Target of the facts. In the course of acting as Target's solicitors Redferns had paid away the mortgage money in its client account to a stranger who had no contractual relationship with Crowngate and before completion of the purchase by Crowngate or the mortgages by Crowngate to Target. Such payments out of client account *430 were otherwise than in accordance with Redferns' instructions from Target. It is common ground that the payments constituted a breach of trust by Redferns. On the other hand, Target had obtained exactly what it had originally intended to obtain, that is to say a loan to Crowngate secured by valid charges over the property.

First, it is alleged that Redferns was in breach of its duty of care as Target's solicitors in failing to alert Target to the suspicious circumstances which indicated a fraud. Secondly, and of direct relevance in the present appeal, Target alleges breach of trust by Redferns in parting with the mortgage moneys without authority.

Target allege, and it is probably the case, that they were defrauded by third parties (Mr. Kohli and Mr. Musafir and possibly their associates) to advance money on the security of the property. If there had been no breach by Redferns of their instructions and the transaction had gone through, Target would have suffered a loss in round figures of 1.2m. (i.e. 1.7m. advanced less 500,000 recovered on the realisation of the security). Such loss would have been wholly caused by the fraud of the third parties. The breach of trust committed by Redferns left Target in exactly the same position as it would have been if there had been no such breach: Target advanced the same amount of money, obtained the same security and received the same amount on the realisation of that security. In any ordinary use of words, the breach of trust by Redferns cannot be said to have caused the actual loss ultimately suffered by Target unless it can be shown that, but for the breach of trust, the transaction would not have gone through, e.g. if Panther could not have obtained a conveyance from Mirage otherwise than by paying the purchase money to Mirage out of the moneys paid out, in breach of trust, by Redferns to Panther on 29 June.

At common law there are two principles fundamental to the award of damages. First, that the defendant's wrongful act must cause the damage complained of. Second, that the plaintiff is to be put 'in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation.

In my judgment those two principles are applicable as much in equity as at common law. Under both systems liability is fault-based: the defendant is only liable for the consequences of the legal wrong he has done to the plaintiff and to make good the damage caused by such wrong. He is not responsible for damage not caused by his wrong or to pay by way of compensation more than the loss suffered from such wrong. The detailed rules of equity as to causation and the quantification of loss differ, at least ostensibly, from those applicable at common law. But the principles underlying both systems are the same. On the assumptions that had to be made in the present case until the factual issues are resolved (i.e. that the transaction would have gone through even if there had been no breach of trust), the result reached by the Court of Appeal does not accord with those principles. Redferns as trustees have been held liable to compensate Target for a loss caused otherwise than by the breach of trust.*433 I approach the consideration of the relevant rules of equity with a strong predisposition against such a conclusion.

Rules of Common law regarding mitigation and causation are not applicable

The equitable rules of compensation for breach of trust have been largely developed in relation to such traditional trusts, where the only way in which all the beneficiaries' rights can be protected is to restore to the trust fund what ought to be there. In such...